Benefits the Insured Promised But Failed to Provide Constitute Non-Covered Restitution

A Vermont federal court has held that a suit seeking “benefits [the insured] promised but failed to provide” sought amounts that fell within an exception for “restitution” from the definition of “damages” covered under an E&O policy.  James River Ins. Co. v. Inn-One Home, LLC, 2020 WL 3415627 (D. Vt. June 22, 2020).

A patient was admitted to a residential care facility.  A caregiver at the facility allegedly assaulted the patient.  Following the assault, the patient brought suit against the facility under a number of legal theories, including breach of contract and violations of the Vermont Consumer Protection Act (VCPA).  Under the VCPA, the patient sought to recover fees paid to the facility for the patient’s care that purportedly represented “the benefits [the insured] promised but failed to provide, three times that amount as exemplary damages, and their attorney’s fees.”

The facility tendered the suit to its E&O carrier, which argued that the amounts representing fees paid for the patient’s care fell within an exception to the definition of “damages” in the policy for “the restitution of consideration or expense paid to [the insured] for professional services rendered or which should have been rendered.”

In the ensuing coverage litigation, the court granted partial summary judgment to the insurer, finding that the fees paid for the patient’s care represented “restitution” and were excepted from the definition of damages.  The court noted that the VCPA permitted a plaintiff to recover “the amount of his or her damages, or the consideration or the value of the consideration given by the consumer, reasonable attorney’s fees, and exemplary damages not exceeding three times the value of the consideration given by the consumer.”  The court found that the benefits the insured promised but failed to provide qualified as the consideration or value of the consideration given by the consumer within the meaning of the statute, constituting restitution under the policy.  The court also observed that the restitution exception did not “foreclose coverage for other types of damages under the” VCPA, although the court did not explicitly address whether the underlying complaint sought any such damages.